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19 Aug 2013
AUD/USD, will macro traders buy into Aus LNG story?
FXstreet.com (Barcelona) - One of the principal catalyst forcing the RBA to adopt a much easier monetary policy stance since last year was the anticipation of a peak in the Australian mining boom, one that saw the central bank hike rates as high as 4.75% post GFC, and paradoxically, also being the driving force triggering the collapse on cash rates to its current 2.5% record low.
Watch the LNG story closely
Much has been said about the deterioration in the Australian mining sector acting as a big drag for the economy, with the sudden drop in Chinese demand as the economy slows down exacerbating the pain. However, one front remains largely ignored market commentators, that is, new developing projects in the Australian economy such as natural gas extraction, liquefaction and export hubs, known as LNG -liquefied natural gas -, which may stage resurgent growth for the economy in coming years.
FXstreet Asian Team has been following this story since back in 2012, when we reported, citing Nomura Economists, that this new investments "will somewhat reduce Australia's dependence on the Chinese investment boom for its growth, as the main consumers of Australian LNG are likely to be Japan and Korea."
Nomura added: "This does not mean that, once these projects are completed, growth will suddenly collapse. While we should see a moderation in private business investment, these new projects should be productive and begin to boost exports. Moreover, a reduction in capital expenditures will likely lead to a moderation in imports. As a result, net exports are expected to become a main source of growth once the investment boom is over" Charles St-Arnaud and Martin Whetton said.
Last year, we also cited Robert Rennie, Analyst at Westpac, saying that "Even if bulk commodity exports do “flatten out”, what markets have clearly overlooked here is the fact that Australia’s exports of energy will grow considerably over the next 5 years..." Rennie added that "The dimensions on LNG-related investment flows will be so significant that will be rivalling the value of Australia’s exports of metallurgical coal by 2016-17", with the Analyst expecting insatiable demand from Japan in the coming years, and as a result, "the value of exports will be robust" the Westpac Analyst said.
One supporting fact about the growing demand for LNG was published less than an hour ago out of Japan, with the country reporting the total Japan LNG imports rose from JPY542Bn to JPY621Bn in July.
LNG to be factored in by macro traders?
Up until now, the FX market has shrugged off the resource and energy outlook story, however, since the sharp decline in the Australian Dollar has adjusted the value of the currency significantly lower, the question now is, is there a new breed of macro traders starting to see value on betting for a more expensive currency as the story gets increasingly harder to ignore? If the correlation between the $A value and the Australian terms of trade is of any indication, ">the chart is starting to show a widening divergence, which suggests buying opportunities for those factoring the trade indicator as a proxy to examine the $A fair value.
Watch the LNG story closely
Much has been said about the deterioration in the Australian mining sector acting as a big drag for the economy, with the sudden drop in Chinese demand as the economy slows down exacerbating the pain. However, one front remains largely ignored market commentators, that is, new developing projects in the Australian economy such as natural gas extraction, liquefaction and export hubs, known as LNG -liquefied natural gas -, which may stage resurgent growth for the economy in coming years.
FXstreet Asian Team has been following this story since back in 2012, when we reported, citing Nomura Economists, that this new investments "will somewhat reduce Australia's dependence on the Chinese investment boom for its growth, as the main consumers of Australian LNG are likely to be Japan and Korea."
Nomura added: "This does not mean that, once these projects are completed, growth will suddenly collapse. While we should see a moderation in private business investment, these new projects should be productive and begin to boost exports. Moreover, a reduction in capital expenditures will likely lead to a moderation in imports. As a result, net exports are expected to become a main source of growth once the investment boom is over" Charles St-Arnaud and Martin Whetton said.
Last year, we also cited Robert Rennie, Analyst at Westpac, saying that "Even if bulk commodity exports do “flatten out”, what markets have clearly overlooked here is the fact that Australia’s exports of energy will grow considerably over the next 5 years..." Rennie added that "The dimensions on LNG-related investment flows will be so significant that will be rivalling the value of Australia’s exports of metallurgical coal by 2016-17", with the Analyst expecting insatiable demand from Japan in the coming years, and as a result, "the value of exports will be robust" the Westpac Analyst said.
One supporting fact about the growing demand for LNG was published less than an hour ago out of Japan, with the country reporting the total Japan LNG imports rose from JPY542Bn to JPY621Bn in July.
LNG to be factored in by macro traders?
Up until now, the FX market has shrugged off the resource and energy outlook story, however, since the sharp decline in the Australian Dollar has adjusted the value of the currency significantly lower, the question now is, is there a new breed of macro traders starting to see value on betting for a more expensive currency as the story gets increasingly harder to ignore? If the correlation between the $A value and the Australian terms of trade is of any indication, ">the chart is starting to show a widening divergence, which suggests buying opportunities for those factoring the trade indicator as a proxy to examine the $A fair value.